Cisco executives recently announced declines in product orders in China, and have placed at least part of the blame on the National Security Agency.

"In our Q1 earnings call of November 13th, we stated that product orders in China declined 18% in Q1 FY14, whereas in Q4 FY13, we referenced that our business in China had declined 6%," a Cisco spokesperson told Ars. "By comparison, China bookings were up 8% in Q3 FY13. So, yes, there is a short-term trend of declining business in China, which we have acknowledged."

Cisco noted that overall revenue is growing. "From a topline perspective, total revenues grew 2% $12.1B for the first quarter. Cisco revenues also grew at 6% in the preceding quarter, and grew 5% in the quarter ending April 2013," the company said.

The trend in China is a little worrying, though. When former NSA contractor Edward Snowden revealed documents that showed the NSA had infiltrated the network infrastructure of universities and other institutions in China, suspicion was immediately cast upon Cisco. In an article published on June 20, the Chinese English-language newspaper Global Times stated, "Although the company has issued statements saying that it is not involved in monitoring citizens or government communications in China or anywhere else, recent events mean that it may be quite a long time before we can trust Cisco again."

But Cisco has other issues that are affecting business in China—for one, a long battle in court and intense lobbying efforts against Chinese hardware vendor Huawei. That company has been effectively pushed out of the US market, in part because of political pressure; a House Permanent Select Committee on Intelligence report last October branded Huawei and the cellular equipment manufacturer ZTE as untrustworthy because of their ties to the Chinese military. Now Cisco faces the same sort of political climate in China.

During the conference call, Cisco CEO John Chambers skirted the subject of the NSA, citing economic slowdowns in some countries as a main cause for the steep sales dropoff. That wasn't the case for China, as the country's economy grew eight percent in the third quarter of 2013.

Chambers admitted to as much, saying, "I do think (the NSA revelation) is a factor in China." Robert Lloyd, Cisco's president of sales, said that the NSA leaks have "caused a number of customers to pause and re-evaluate."

Cisco is the main target of Chinese suspicions, but it isn't alone. IBM, EMC, and Oracle became the subject of similar scrutiny in August, when it was reported that the Chinese Ministry of Public Security was "preparing to investigate" the companies over security issues in the wake of revelations about the NSA's PRISM program. Last month, IBM reported a 22 percent drop in revenue in China.

Hewlett-Packard, on the other hand, has actually seen an uptick in network hardware sales in China and has seen less of an overall impact. That fact suggests Cisco's problems are a bit more specific to the company's decade-long problems with China rather than the NSA's activities.

The original version of this story incorrectly stated that Cisco's overall earnings had declined.

47 Reader Comments

I believe more data is needed prior coming to a conclusion in this regard, if previous quarters didnt had that percentage decline, then the NSA has something to do with this, becuase all their decade long problems should had affect them earlier, showing an steady quarterly decline for example.

I dont believe in coincidence, so for me the NSA situation might had some impact on this issue, but again more analysis and information is needed in that regard.

I'm not interested in any of these unscrupulous hardware vendors. Anyone who would compromise their product like that does not deserve any money.

I don't think you have a very clear idea of how this works. It's not like a friendly NSA rep pops by for lunch and makes a nice even handed request to comprise their products, and asks them to do it out of the goodness in their hearts.

It's more along the lines of "Hey Cisco, nice business you got there, it'd be a real shame if anything happened to it."

If they only speak in dollars; then you've got to start speaking in dollars.

Until respected economists start shooting out studies confirming a correlation between the NSA spying revelations and dropping industry revenue numbers, its all speculation.

Common sense dictates these NSA revelations cannot be helping sales, only hindering them.

On the practical side, where else do you go to get premiere networking hardware besides the industry leaders? If those corporations are all "in bed" with the NSA and/or other government spy agencies, what alternative is there?

There is also consideration of the internet backbones themselves. Can you expect those devices to be swapped out for inferior non-government coerced/subverted devices and expect the public to accept transmission failures and/or delays?

EDIT:I am starting to see the NSA spying revelations much like a resident suddenly notices the huge number of vermin crawling just about everywhere and on everything, but just out of visible sight. Its revolting, its disgusting, and you want them OUT. However they have been nesting for so long and are so deep into the structure, can you get rid of them without tearing down the entire residence? Our concern should be on the long term cleanup this will take and will the public be willing to deal with the repercussions and consequences?

Maybe yes, maybe no. If the hardware's not open-sourced and the software's not open-sourced then neither can be trusted. Cisco's built up a tremendous empire and it's about to watch that empire topple due to its acquiescence, or passive acceptance, to the wishes of the security agencies. Suddenly, Facebook's open-hardware and open-networking initiative looks mighty prescient in hindsight. Closed-hardware and closed-source is not longer viable in that neither can be trusted in the age of the "surveillance state."

Maybe yes, maybe no. If the hardware's not open-sourced and the software's not open-sourced then neither can be trusted. Cisco's built up a tremendous empire and it's about to watch that empire topple due to its acquiescence, or passive acceptance, to the wishes of the security agencies. Suddenly, Facebook's open-hardware and open-networking initiative looks mighty prescient in hindsight. Closed-hardware and closed-source is no longer viable in that neither can be trusted in the age of the "surveillance state."

If the CEO says he thinks the NSA revelations are a factor, you can bet they ARE a factor.

CEO's are very guarded on their statements to the public, and the number one business activity they spend the most time on is monitoring the company's revenue streams. I'm sure Cisco spends lots of energy learning about how those streams are affected by market influences, which means the CEO knows what the hell he is talking about.

Do they source the numbers for this? According to their own data revenue growth was only 5.4% YoY for the April quarter, compared to the January quarter they had less than 1% growth. Or is it just the numbers for China being cited, not Cisco's overall sales?

Cisco’s falling sales are the fault of their money grab licensing schemes, coupled with more competition available in that market.

Last time we bought Cisco ASAs we had a 4 way call with me, my supply guy, Cisco engineer, and Cisco sales guy. All of us had other people we were talking to on our end, that weren't audible on the conference call. Sometimes 4 simultaneous conversations were going on. Like fricken NASA flight director loop.

Except NASA landed on the moon, and all I wanted to know is what to buy and how much I was going to pay for it.

Active/passive pair... one or two sets of VPN licenses? Standard or premium license for SSL VPN? Can I please have content filtering and IDS? What do you mean SKUs aren't available? You mean to tell me the device can technically do both, but the license key for it isn't available? I need Smartnet AND an annual IDS subscription? :shock: I don't need a pair of $6000 wifi controllers? WAPs can operate controlerless? Cool! Want! ....... What do you mean clients would drop connections when they roam in controlerless mode? Well fuck you then. Etc etc etc.

I swear if this were my company I'd get rid of all this shit and replace it with Mikrotik gear.

Cisco makes some sweet hardware. But their licensing schemes make me want to stab myself in the head.

The price and ludicrous number of similar SKU's cisco products has no impact of course.

BTW HP switches are pretty good and far more affordable.

They are, but you have to watch the specs. I bought a set of ProCurve 2824s and they worked well enough but for the lack of sufficient buffers for both flow control and jumbo frames (which you need for iSCSI). Otherwise yes, they're excellent, well-supported (lifetime hw/sw---a huge boon versus the costs of a Cisco SmartNet sub) and capable.

Maybe yes, maybe no. If the hardware's not open-sourced and the software's not open-sourced then neither can be trusted. Cisco's built up a tremendous empire and it's about to watch that empire topple due to its acquiescence, or passive acceptance, to the wishes of the security agencies. Suddenly, Facebook's open-hardware and open-networking initiative looks mighty prescient in hindsight. Closed-hardware and closed-source is not longer viable in that neither can be trusted in the age of the "surveillance state."

I saw this first hand during the CALEA project; Cisco equipment being replaced by Juniper equipment because it was not "compliant" with CALEA requirements when it got too close to the deadline. I think it is fair to say that such acquiescence or acceptance has long since occurred.

Edit: This is more an example of Cisco losing market share domestically due to a failure to comply, though I'm fairly confident they have since remedied that.

If the CEO says he thinks the NSA revelations are a factor, you can bet they ARE a factor.

CEO's are very guarded on their statements to the public, and the number one business activity they spend the most time on is monitoring the company's revenue streams. I'm sure Cisco spends lots of energy learning about how those streams are affected by market influences, which means the CEO knows what the hell he is talking about.

Cisco’s falling sales are the fault of their money grab licensing schemes, coupled with more competition available in that market.

Yes, this. Once upon a time I could buy only Ciscos for networking, but with the dot-com crash in 2001 Cisco started to go crazy. It's been a long time since they were the best choice.

Quote:

I swear if this were my company I'd get rid of all this shit and replace it with Mikrotik gear.

My next purchases won't be Cisco. I'd like to go full commodity with open-source SDN, but those standards are still emerging. Pica8 is interesting, as are the Quanta switches. I've heard good things about Arista gear; Mellanox is a leader in InfiniBand and their 40GBASE and 10GBASE stuff certainly deserves a look. I've used Vyatta on commodity x86-64 platforms with excellent success, and I would buy Juniper routers.

For firewalls and, especially, load-balancers I would not use dedicated hardware -- haproxy for the latter. I'm not sure about open-source WLAN controller options.

They are, but you have to watch the specs. I bought a set of ProCurve 2824s and they worked well enough but for the lack of sufficient buffers for both flow control and jumbo frames (which you need for iSCSI). Otherwise yes, they're excellent, well-supported (lifetime hw/sw---a huge boon versus the costs of a Cisco SmartNet sub) and capable.

Jumbo frame LANs beg for compatibility problems, and the only thing Jumbos buy you is reduced CPU load, not increased maximum throughput.

The impact of the Snowden's revelations will be felt for years to come in the US technology sector.

This headline is just one of the first that will spur big-business lobbyists into action that we can all get behind.

Trust for the US government from their allies and for US companies from their customers will be very hard, near impossible to recover because they not only betrayed us but lied to our faces before about not spying on us. You can't proof that you are not spying on someone - would you trust a known liar when there is no chance to verify his promises?

Jumbo frame LANs beg for compatibility problems, and the only thing Jumbos buy you is reduced CPU load, not increased maximum throughput.

I agree for server or user LANs, but this was for an iSCSI SAN.

The same principle applies. Are you using software or hardware initiators? I don't want to be dismissive or smug, but if jumbo frames actually improves performance, what you really need are better CPUs (or a software implementation that better uses those CPUs, similar to the way Linux software RAID now uses the AVX instructions on newer Intel AMD64 processors) to handle the interrupts.

This whole "trust the government" thing we just went through, on a fifty year cycle, is ludicrous. The United States federation was built to be regulated by citizens (states, actually) that are responsibly distrustful of government.